Covid-19 – Pension scheme trustee action plan
The Covid-19 crisis has brought with it sudden and drastic changes to everyone’s way of life. People are worried about the wellbeing of loved ones and how their jobs are going to be impacted and no one knows when things will get back to normal. Pension schemes are also affected and to help trustees through these uncertain times, we are setting out some key things they should be doing and thinking about. You can find a handy checklist at the end of this guidance.
Whether or not you have contingency plans for business interruption, they may not cater for the widespread disruption we are currently experiencing. There is no substitute for getting together with your advisers, scheme administrator and scheme employers to work through the current risks to their scheme and its members and what can be done to mitigate them.
A specific Covid-19 risk register and action plan would be a helpful output from the meeting with someone appointed to monitor and report on it to the trustee board on a frequent basis.
Trustees will need to ensure that, so far as possible, their scheme functions as normal. We recommend engaging with scheme administrators to understand what might be impacted by their employees having to work from home, or significant staff absences. The same goes for employers and advisers whose input is needed for benefit and contribution payments.
Trustees should decide what should be prioritised if services are impacted. We would expect priorities to include the continued payment of pensions, processing of serious ill-health full commutations, new retirements and survivors’ pensions and dealing with changes to pension contributions.
Trustees may wish to familiarise themselves with service provider contracts and what remedies they provide where services cannot be delivered. However, we see this as a second order of priority with the focus being on what practical action can be taken to maintain business as usual.
Trustees should consider their strategy for communicating with members. Many will have concerns about the security or value of their pensions. Members with DC pots may be in need of support to help them decide how to invest current funds and future contributions and deal with retirement planning. Trustees could usefully point members to the guidance from the Money and Pensions Service whose key message is to think decisions through carefully and not to panic.
Crises also provide opportunities for criminals to prey on peoples’ anxieties and trustees should be exercising increased vigilance for pension scams targeted at their members, seeking to get them to transfer to supposedly safer or higher-return investments.
For schemes with active members, trustees and employers should look to see how reduced pay or hours impact on benefits and contributions and consider whether it would be appropriate to make any changes to deal with these unprecedented times.
Trustees need to ensure they can continue to make decisions about their scheme as and when required. Some quick actions may be needed.
Trustee boards will no longer be able to meet in person, and trustees should familiarise themselves with their meeting and decision making procedures - in their scheme’s Rules, or in the case of a sole corporate trustee, the trustee’s Articles of Association. Trustees should also check wider authorisation and signing procedures, such as those needed to change investments or make payments. Many schemes will allow decisions to be taken by audio or video conference, or email approval and for urgent decisions to be taken on short notice, or by the trustee board Chair. If this isn’t the case, trustees could consider changing their procedures. Putting delegated authorities in place, appointing alternate directors of a corporate trustee, or giving powers of attorney can also be a helpful way of dealing with trustees being unavailable due to illness, or for other reasons.
We have published some tips on how to run effective audio and video conference meetings.
While at home, trustees need to remember to comply with requirements relating to the protection of personal data. Personal data should be encrypted or password protected where sent or accessed over the internet. Trustees should be particularly careful where personal data is held on personal devices, such as a home PC, to ensure devices have adequate and up to date security and that they are not using internet service providers which store data on servers outside the EEA.
Trustees should be engaging with sponsoring employers and any parent companies which provide support for the scheme to understand the impact of the crisis on their business and current and forecast financial position and consequences for the scheme’s funding. Given the unprecedented nature of the current situation, we recommend that trustees agree a process for frequent updates. Models are predicting a possible second spike in Covid-19 cases later in the year, so trustees should ask employers how this could impact them and factor it into their wider contingency planning and decision making. Trustees should consider if they need professional covenant advice.
The Pensions Regulator has produced is a list of questions it recommends asking employers and guidance on what to do if an employer asks to suspend paying deficit repair contributions.
For trustees whose sponsoring employers are severely financially stressed, trustees and their advisers should be engaging in urgent discussions with the employer to understand its position and plans and the consequences for the scheme. The PPF has produced a helpful guide to contingency planning for a scheme employer’s insolvency.
Trustees who have funding and covenant support arrangements with triggers linked to an employer’s earnings or credit rating, or the scheme’s funding positon should be monitoring those triggers carefully and considering what action they would take where a trigger point has been reached.
For schemes with valuations with an effective date was before the current crisis, trustees should ask their scheme actuary for input on the extent to which market movements can, or should, be taken into account. For schemes which have just reached, or will be reaching a valuation date in the near future, the starting point for the valuation will be the scheme’s asset value at that date which may be significantly reduced in value compared to a few months ago. We are expecting the Pensions Regulator to issue guidance for these schemes next month.
Trustees should take advice on whether changes should be made to factors for early and late retirements and commutation and whether any action is required in relation to calculating and paying transfer values.
Trustees should be taking advice on their investment strategy and considering if any changes are required. Pre-agreed investment strategy changes, or disinvestment and re-balancing processes should be reviewed to check they are still appropriate. Trustees should, in particular, consider how their scheme can meet any increased cash flow demand, arising from a high number of death benefit claims.
If trustees have insured death benefits, they should check if the policy includes a pandemic exclusion, or a cap on the maximum value of payouts. Some scheme’s Rules may provide that benefits only have to be paid to the extent the insurance policy pays out and while we envisage trustees would only seek to rely on such provisions as a last resort, it would still be a good idea to check the position.
We are all navigating uncharted waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.
Business continuity planning
Whether or not you have contingency plans for business interruption, they may not cater for the widespread disruption we are currently experiencing. There is no substitute for getting together with your advisers, scheme administrator and scheme employers to work through the current risks to their scheme and its members and what can be done to mitigate them. A specific Covid-19 risk register and action plan would be a helpful output from the meeting with someone appointed to monitor and report on it to the trustee board on a frequent basis.
Administration
Trustees will need to ensure that, so far as possible, their scheme functions as normal. We recommend engaging with scheme administrators to understand what might be impacted by their employees having to work from home, or significant staff absences. The same goes for employers and advisers whose input is needed for benefit and contribution payments. Trustees should decide what should be prioritised if services are impacted. We would expect priorities to include the continued payment of pensions, processing of serious ill-health full commutations, new retirements and survivors’ pensions and dealing with changes to pension contributions.
Trustees may wish to familiarise themselves with service provider contracts and what remedies they provide where services cannot be delivered. However, we see this as a second order of priority with the focus being on what practical action can be taken to maintain business as usual.
Members
Trustees should consider their strategy for communicating with members. Many will have concerns about the security or value of their pensions. Members with DC pots may be in need of support to help them decide how to invest current funds and future contributions and deal with retirement planning. Trustees could usefully point members to the guidance from the Money and Pensions Service whose key message is to think decisions through carefully and not to panic.Crises also provide opportunities for criminals to prey on peoples’ anxieties and trustees should be exercising increased vigilance for pension scams targeted at their members, seeking to get them to transfer to supposedly safer or higher-return investments.
For schemes with active members, trustees and employers should look to see how reduced pay or hours impact on benefits and contributions and consider whether it would be appropriate to make any changes to deal with these unprecedented times.
Trustee decision making
Trustees need to ensure they can continue to make decisions about their scheme as and when required. Some quick actions may be needed. Trustee boards will no longer be able to meet in person, and trustees should familiarise themselves with their meeting and decision making procedures - in their scheme’s Rules, or in the case of a sole corporate trustee, the trustee’s Articles of Association. Trustees should also check wider authorisation and signing procedures, such as those needed to change investments or make payments. Many schemes will allow decisions to be taken by audio or video conference, or email approval and for urgent decisions to be taken on short notice, or by the trustee board Chair. If this isn’t the case, trustees could consider changing their procedures. Putting delegated authorities in place, appointing alternate directors of a corporate trustee, or giving powers of attorney can also be a helpful way of dealing with trustees being unavailable due to illness, or for other reasons.
We have published some tips on how to run effective audio and video conference meetings.
While at home, trustees need to remember to comply with requirements relating to the protection of personal data. Personal data should be encrypted or password protected where sent or accessed over the internet. Trustees should be particularly careful where personal data is held on personal devices, such as a home PC, to ensure devices have adequate and up to date security and that they are not using internet service providers which store data on servers outside the EEA.
Funding and covenant
Trustees should be engaging with sponsoring employers and any parent companies which provide support for the scheme to understand the impact of the crisis on their business and current and forecast financial position and consequences for the scheme’s funding. Given the unprecedented nature of the current situation, we recommend that trustees agree a process for frequent updates. Models are predicting a possible second spike in Covid-19 cases later in the year, so trustees should ask employers how this could impact them and factor it into their wider contingency planning and decision making. Trustees should consider if they need professional covenant advice.The Pensions Regulator has produced is a list of questions it recommends asking employers and guidance on what to do if an employer asks to suspend paying deficit repair contributions.
For trustees whose sponsoring employers are severely financially stressed, trustees and their advisers should be engaging in urgent discussions with the employer to understand its position and plans and the consequences for the scheme. The PPF has produced a helpful guide to contingency planning for a scheme employer’s insolvency.
Trustees who have funding and covenant support arrangements with triggers linked to an employer’s earnings or credit rating, or the scheme’s funding positon should be monitoring those triggers carefully and considering what action they would take where a trigger point has been reached.
For schemes with valuations with an effective date was before the current crisis, trustees should ask their scheme actuary for input on the extent to which market movements can, or should, be taken into account. For schemes which have just reached, or will be reaching a valuation date in the near future, the starting point for the valuation will be the scheme’s asset value at that date which may be significantly reduced in value compared to a few months ago. We are expecting the Pensions Regulator to issue guidance for these schemes next month.
Trustees should take advice on whether changes should be made to factors for early and late retirements and commutation and whether any action is required in relation to calculating and paying transfer values.
Investments & insurance
Trustees should be taking advice on their investment strategy and considering if any changes are required. Pre-agreed investment strategy changes, or disinvestment and re-balancing processes should be reviewed to check they are still appropriate. Trustees should, in particular, consider how their scheme can meet any increased cash flow demand, arising from a high number of death benefit claims.If trustees have insured death benefits, they should check if the policy includes a pandemic exclusion, or a cap on the maximum value of payouts. Some scheme’s Rules may provide that benefits only have to be paid to the extent the insurance policy pays out and while we envisage trustees would only seek to rely on such provisions as a last resort, it would still be a good idea to check the position.
Trustee checklist
- Risk assessment meeting - set up a risk assessment meeting with your scheme administrator, advisers and employers.
- Risk register - prepare a Covid-19 risk register with someone appointed to monitor and report regularly to the trustee board.
- Scheme administrator – check the position of your scheme administrator to pay benefits and agree prioritised actions.
- Member communications – consider how to deal with member concerns and emphasise the need to watch out for scams.
- Trustee decisions – ensure the trustee board is set up to be able to make decisions quickly and if members of the trustee board are ill.
- Data protection - ensure personal data is adequately protected when working from home.
- Covenant – evaluate the impact of the crisis on employers and parent company guarantors and the consequences for your scheme.
- Funding/covenant support arrangements - monitor funding and support triggers and decided what action to take if a trigger point is reached.
- Valuations – for ongoing valuations discuss the impact of the crisis on the valuation. For recent or future valuation dates, await guidance from the Pensions Regulator.
- Factors & transfer values – obtain advice on whether any changes should be made to early/late retirement and commutation factors and the payment of transfer values.
- Investments – obtain advice on whether any changes should be made to your investment strategy and if pre-agreed actions remain appropriate.
- Cash flow – consider how your scheme will meet cash flow demands arising from increased death benefit payments.
- Insurance – check if life assurance policies contain a pandemic exclusion or payment cap and if your scheme rules allow payments to be linked to policy payments.